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Written by: Victoria Hasler | Hargreaves Lansdow
- With both rates and inflation falling, there is value in bonds.
- Increased trade tariffs could benefit US smaller companies.
- With so much uncertainty in the world, gold could still hold appeal.
- Three funds investors may want to consider for the year ahead.
As 2024 is draws to a close, our thoughts are turning to what the next year will bring for markets. Most western central banks are now in a rate cutting cycle, but bond yields remain higher than they have been for some time so there is still value in bonds at these levels.
Trump’s election victory in the US means it’s all change in the White House. While the policies actually implemented are expected to be a little softer than the pre-election campaign may have suggested, an increased implementation of tariffs is expected which could give more domestically focused US companies a tailwind.
Meanwhile, geopolitical tensions remain high and the outlook for markets is far from certain. Central Banks continue to add to their gold reserves, and even though gold has had a great run, it could still be a useful diversifier. Here are three funds investors could consider for 2025 and beyond.
Invesco Tactical Bond
The US Federal Reserve (Fed), European Central Bank (ECB) and Bank of England (BoE) all cut interest rates in 2024, and the market expects further cuts in 2025. Inflation is at or close to target in many markets. In this environment we expect bonds to perform well. In an uncertain environment, however, we favour either high-quality bonds or, better still, choosing an active manager who can manage interest rate and credit risk for you.
The Invesco Tactical Bond fund can invest in all types of bonds, with few constraints. The performance of the fund hinges on the managers’ ability to interpret the bigger economic picture. They aim to shelter the fund when they see tough times ahead and seek strong returns as more opportunities become available.
This fund takes away the hassle of deciding which type of bonds to invest in and when because the managers are given the discretion to make these decisions for you.
Artemis US Smaller Companies
The change of US president will bring about a change in US policy. One of the most talked-about is increased tariffs, particularly in relation to China. Whilst tariffs are seldom a good thing for growth overall, they could potentially be good for US smaller companies. Why? Because trade tariffs favour domestic businesses over international conglomerates, and smaller companies are usually more domestically focused. Combine this with a more supportive monetary policy stance and we believe this year could be a good time to invest in domestic-facing US corporates.
The Artemis US Smaller Companies fund seeks out smaller companies with good potential for their share price to grow relative to the risk of the business. We like the way the manager considers how the US economy is performing to identify sectors that are benefiting from trends, as well as the areas that are finding things tough. We believe this should help the fund take advantage of new or changing policies put in place by the new president.
Troy Trojan
Geopolitical risks remain high, with tensions in the Middle East escalating, and the Russia/Ukraine situation still unresolved, not to mention trade tariffs and rising tensions between the US and China. In times of uncertainty one investment which tends to do well is gold. It has had a fantastic run in 2024, rising 28.43% in the 11 months to the end of November 2024. Whilst we wouldn’t necessarily expect returns to continue at this pace, the uncertain outlook combined with increased buying from central banks, particularly in emerging markets, means that the commodity could continue to enjoy support.
The managers of the Troy Trojan fund manage to take advantage of the attributes of gold without putting all their eggs in one basket. Rather than trying to shoot the lights out, the fund aims to grow investors' money steadily over the long run, while limiting losses when markets fall.
The fund is focused around four 'pillars'. The first contains large, established companies the managers think can grow sustainably over the long run. The second is made from bonds, including US index-linked bonds, which could shelter investors if inflation rises. The third pillar consists of gold-related investments, including physical gold, which has often acted as a safe haven during times of uncertainty. The final pillar is ‘cash’. This provides protection when markets stumble, but also a chance to invest in other assets quickly when opportunities arise.”
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